National Australia Bank (NAB), the parent company of The Clydesdale and Yorkshire banks, has reported a return to profit for its UK operations.

For the six months to the end of March NAB reports its UK division made a pre-tax profit of £54 million against a loss of £38 million for the same period a year ago.

The Australian banking giant said the transfer of £5.6 billion of commercial property assets from the UK divisions to the parent company had reduced bad debt provisions to £91 million, a reduction of £191 million on the first half last year.

Last October, Clydesdale Bank reported a £183 million loss for the year as bad debts rose 90 per cent to reach £631 million which forced NAB to step in to absorb the UK commercial property loan book.

In its full-year results to September 30, 2012, Clydesdale Bank said underlying profits were down £448 million, with the bulk of those losses stemming from “further deterioration in the commercial property market”.

The Glasgow-based lender also reported a near 90 per cent rise in bad debts last year to £631 million, mostly on commercial property write downs, forcing NAB into its first annual loss.

In April 2012, NAB announced plans to cut 1,400 jobs by 2015 and that it would withdraw from commercial property lending, which accounts for 90 per cent of non-retail lending in the UK, to focus on consumer and small business lending.

The UK division said today it was “over 70 per cent of the way” towards meeting its planned headcount reduction target.

Despite the reduction in costs, NAB said UK operating expenses were down just 0.9 per cent - £ 3 million - “as benefits from restructuring activities were offset by an increase in the provision for customer redress”.

Clydesdale Bank had originally set aside £108 million to cover payment protection insurance claims, adding a further £120 million provision in the year to September 2012 before stating in full-year results it was still uncertain of the final cost.

In February NAB reported an improvement on earnings from its UK subsidiaries, largely from a reduction in operating costs and an improvement in bad debt provisions.

NAB has also reported a return to profits in its first-half results today, up 3.1 per cent on last year to AUS$ 2.92 billion (£1.92 billion).

The group said in today's market update, UK mortgage lending rose 9.1 per cent in the first half to £1.3 billion though average business lending was down £7.4 billion, “largely reflecting” the property portfolio transfer.

In March, NAB had described its UK banking division as a “problem asset”, adding its options were “limited” but ruled out a “desperate fire sale” of the business.

David Thorburn, chief executive of the UK division, refused to be drawn on whether NAB is still considering a sale of the UK division, saying he would not “fuel the fires” of speculation.

He said: “Good progress has been made in delivering the key outcomes of the strategic review announced last April.

“Our strategy to become a stronger and more competitive business is proving to be the right one and, while there is more work to be done, there has already been a significant transformation of our business.

“Our pre-tax cash earnings were £54 million in the half following the successful transfer of £5.6 billion of commercial real estate assets to our parent in October.

"In addition, this significant step helped deliver a £191 million improvement in our bad and doubtful debt charge which fell to £91 million.

“Simplifying our business model to concentrate on our traditional strengths, we have successfully reshaped the geography, risk appetite and the composition of business banking. Our support for mortgage customers has also continued with over nine per cent growth in average mortgage lending balances.

“While conditions remain challenging, we are in good shape for the future as a strong customer-focused bank for the communities in which we operate.

“This is underpinned by a smaller and stronger balance sheet, with a significantly improved funding and capital position.